Health-care and banking industries face the most reforms under Obama
While the financial markets wrestle with the possibility of the so-called fiscal cliff, the health-care and banking industries already know what to expect in the wake of the presidential election.
Both sectors had a lot at stake given the wide policy differences between President Barack Obama and GOP challenger Mitt Romney on those two key parts of the U.S. economy.
"I think those are the two areas where there are a lot of headwinds," said Matt Boyle, certified financial planner for Charles Schwab in Manchester. That's because the re-election of Obama means full speed ahead on implementation of the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
One rewrites the book on health care, while the other affects almost every part of the nation's financial services industry.
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Investment advisers in New Hampshire, while not commenting on any specific stocks or companies, said those two sectors could have gone in an entirely different direction had Romney won the election. Although the candidates certainly had differences on policies affecting those industries, they were not nearly so far apart, and their range of options was more narrow.
"There are two things we now understand are definitely here to stay - Dodd-Frank and the health-care reform act," said Boyle. What matters now is how the rules are written to enforce the provisions of both laws that have yet to be implemented.
Dodd-Frank, which passed in 2010 in response to the banking industry meltdown, imposes new regulations on banks, financial institutions and investment firms, and restricts the ability of banks to engage in certain stock transactions in the future through what has become known as the Volcker Rule, named for former Fed Chairman Paul Volcker.
"Key provisions of Dodd-Frank, like the Volcker Rule, will be re-energized now that Obama has been re-elected," said Securities Attorney Andrew Stoltmann. "Wall Street bet big on Romney and lost. Banks and brokerage firms are now likely to face more rules and regulations."
The combination of a president who doesn't need to worry about getting re-elected, Elizabeth Warren in the Senate, and an almost-certain new SEC chair will mean more oversight for Wall Street, Stoltmann said. Warren served as chair of the Congressional Oversight Panel created to monitor the Troubled Asset Relief Program (TARP), and later was an assistant to the President and special advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau.
Although both the Affordable Care Act and Dodd-Frank were passed by Congress and signed into law two years ago, only their most benign provisions have been implemented so far, and even those could have been reversed. "There was some question as to whether those government regulations were going to be removed, and clearly they're not from this point on," Boyle said.
The Volcker Rule, which restricts bank activity in the stock market, was supposed to take effect in July, but had to be postponed due to the complexity of the regulatory process. Critics of the law have said it will require regulators to write more than 200 new rules, conduct 67 different studies and issue 22 periodic reports.
Implementation of key portions of health-care reform that take effect in 2013 and 2014 is no less daunting.
That doesn't mean investors should rush to sell their health care for banking stocks, brokers agreed. Some of the smaller, regional banks could benefit from the changes, while the larger, national banks struggle with implementation of the new rules.
Small businesses will face real challenges with the expansion of health insurance, but 30 million Americans will gain health-care coverage, easing the burden on hospitals to provide indigent care.
"You can never discount the ability of the health-care and health-insurance industries to be able to move ahead and make money regardless of what the regulatory environment looks like," Boyle said.
Hospital stocks like HCA, Community Health Systems and Tenet Healthcare were big gainers on Wednesday. Shares of the nation's biggest financial institutions declined, ranging from Morgan Stanley, which dipped 8.6 percent, to Wells Fargo, down 3.3 percent.
What will matter almost as much as the election itself is the outcome of negotiations to avoid the so-called "fiscal cliff," a series of tax hikes and spending cuts that will kick in automatically next year if Congress cannot reach a deal on debt and deficit reduction.
"It's not so much the election," Boyle said. "That's only the first brick in the road toward the more important question of what happens with the fiscal cliff."
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Dave Solomon may be reached at firstname.lastname@example.org.